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https://www.wsj.com/articles/SB104673449248050000

Monday's Movers

Market Sells Off on Domestic Worries

By

Jennifer Saranow

Updated March 3, 2003 7:00 pm ET / Original Sept. 15, 2019 5:40 am ET

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After an initial burst of optimism on the overseas front &ndash; particularly the capture over the weekend of a top Al Qaeda planner -- investors turned their attention homeward Monday. And it wasn't a pretty sight: disappointing economic data sent the Dow Jones Industrial Average down 53.22, or 0.67%, to close at 7837.86.

The market rallied briefly early in the session, reaching 1337.52, only to sell off for much of the session.

The main culprit: a report from the Institute of Supply Management showed that while still growing, the factory sector's pace has sharply slowed from prior months. The Institute's index of manufacturing activity fell to 50.5 in February, below the 52.4 predicted by analysts and barely above the 50 reading that indicates growth. It fell from 53.9 in January.

U.S. Commerce Department figures also came in lower than expected. Personal income rose 0.3% in January and personal consumption fell 0.1%, but a Dow Jones Newswires-CNBC survey had called for January personal income to grow 0.4% and for unchanged spending.

The tortoise-like pace of an economic recovery, if it can be called that, trumped the news over the weekend that Iraq had begun destroying al-Samoud 2 missiles and that a top Al Qaeda operative, Khalid Shaikh Mohammed, was captured in Pakistan and turned over to U.S. authorities.

Meanwhile, the broader Standard & Poor's 500 Index lost 6.34 points, or 0.8%, to 834.81. The technology-laced Nasdaq Composite Index dropped 17.23 points, or 1.3%, to end at 1320.29. On the New York Stock Exchange, decliners barely outpaced advancers: 1,619 stocks fell and 1,614 rose. More than 1.18 billion shares traded hands on the Big Board, down slightly from 1.31 billion on Friday.

Bonds were little changed. The yield on the Treasury's benchmark 10-year note slipped to 3.68%. The price, which moves inversely to yield, rose about 2/32 to 101 20/32.

In Barron's, this week's Sizing Up Small Caps, "Royal Showing," argued that
Royal Gold
is overvalued. The Denver-based firm, which acquires and manages precious metal royalty interests, has jumped from 2 to a high of 28 over the past two years. Though back at around 19 last week, that's still a gain of 600% from its low. This compares with a loss of 33% for the S&P 500 since March 2001 and even a gain of 31% over the same time period for the index of 28 mining/gold stocks.

To put it another way, at 19.45 Royal Gold shares traded at very pricey 65 times earnings and 50 times EBITDA (earnings before interest, taxes, depreciation and amortization). While Royal Gold is certainly not capital intensive, with little equipment or employees and no debt, the article concludes that the firm's intrinsic value is at most a third of that price. Even generous assumptions about performance and gold prices put the value of the company at $9 a share, less than half the current stock price. Other estimates put its value even lower. The article also noted that over the past year, six insiders have sold or disclosed plans to sell 267,000 shares, worth some $3.2 million.

On Monday, shares of Royal Gold shares plummeted 6.35, or 32.65%, to 13.10.

Gold was also a subject in this week's interview, "Revived at Osiris.&rdquo; Barron's sat down with Paul Stuka, a celebrated small-cap manager in the mid-1980s at the helm of the Fidelity OTC Fund. He's the founder of the long-short fund Osiris Partners. The fund, with only $27 million of assets, delivered a 103% return in 2002 after fees. It gained 12.9% the previous year. Stuka's secret: He says two-thirds of the portfolio on both the long and short sides comes from his macro view of the world and the other third consists of companies with good prospects, good products, good acquisitions or some kind of favorable change.

In his macro view, the market is not convinced that the upward move in gold and other commodities is anything but a temporary flight to safety. While Stuka has pulled back on gold from betting on it big last year, cutting his funds portion in half, he says he still owns a lot of gold stocks. But he's staying away from the large companies with shortfalls in earnings and low-grade reserves and, instead, owns 13 smaller names with decent values. Those include
Hecla Mining
and
Canyon Resources.

In Monday's session, Hecla Mining fell 0.08, or 2.1%, to 3.72 and Canyon Resources also lost 0.08, or 5.3%, to 1.42. Lionbridge Technologies rose 0.23, or 11.5%, to 2.23, and Omega Protein tacked on 0.17, or 3.72%, to 4.74.

Finally, another Barron's feature, "Take Your Medicine," highlights that while things have been grim for
Bristol-Myers Squibb,
they're likely to get better. Sporting a $140 billion market capitalization a couple of years ago, the pharmaceutical firm has gone through a wave of bad luck and bad business, from betting on Imclone System's cancer drug to patents on key drugs running out.

Another big blow: misstating sales by stuffing its distributors with inventory, as the article pointed out. But BMY now appears to be coming clean. For one thing, next Monday the company is set to restate its 2000 and 2001 results.

The company's shares are down to 23.50 from a peak of 75, currently trading at less than 15 times expected 2003 profits. Bristol's pipeline, certainly average, is valued at a 40% discount to the rest of Big Pharma.

Richard Evans, an analyst at Sanford C. Bernstein, thinks the market undervalues Bristol's early-stage products by as much to 40% to 50%.

Jennifer Saranow is a news assistant at WSJ.com and Barron's Online.

Market Sells Off on Domestic Worries

After an initial burst of optimism on the overseas front &amp;ndash; particularly the capture over the weekend of a top Al Qaeda planner -- investors turned their attention homeward Monday.

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